21st Aug 2024 12:21
(Alliance News) - Costain Group PLC is "simply too cheap", an analyst on Wednesday said, after the firm highlighted a buoyant order book with contract wins across all sectors.
In the six months to June 30, the Maidenhead, England-based construction and engineering firm said pretax profit doubled to GBP17.0 million from GBP8.5 million a year prior.
Adjusted operating profit rose 8.7% to GBP16.3 million from GBP15.0 million with margin of 2.5%, up from 2.3% a year ago. Costain said it was on track to hit adjusted operating profit margin targets of 3.5% and 4.5% in 2024 and 2025.
The profit bump came despite revenue falling 3.4% to GBP639.3 million from GBP664.4 million. This reflected growth in Natural Resources, and as expected, a small reduction in Transportation.
Positively, Costain flagged a "high quality" forward work position of GBP4.3 billion, more than three times 2023 revenue of GBP1.33 billion. It was also higher than the GBP4.0 billion forward work position disclosed a year ago.
Shares in Costain rose 4.9% to 99.27 pence in London on Wednesday.
Costain reported contract wins across all sectors and "significant growth" in water. At least a further GBP500 million of water contracts have been won post half year, the firm added.
Costain said: "In line with Ofwat's draft determination, we expect water investment to at least double during the next regulatory period to its highest level for decades and through recent contract awards we are well placed to capitalise on these opportunities."
Chief Executive Officer Alex Vaughan said he expects "further wins for the group in the second half of the year".
"The quality and customer balance of our forward work position across our two divisions, together with strong highly visible market investment, gives us good visibility on future revenue and margin. We continue to deliver improvements in the business and remain confident in the group's prospects," he added.
Reflecting this confidence, Costain launched a GBP10 million share buyback. It left the dividend unchanged at 0.4 pence per share.
The buyback will consist of two tranches, with the first of up to GBP5 million to start immediately. The second GBP5 million tranche is anticipated to end no later than March 28, 2025.
Panmure Liberum analyst Joe Brent increased his 2024 and 2025 earnings per share estimates by 1% and 4% to reflect the share buyback.
As for the results, Brent saw three key points.
First, he highlighted the positive infrastructure outlook, with more upside in Natural Resources than downside in Transportation; second, he noted good progress towards margin targets, with 2.5% achieved in the first half; and third the increase in the forward work position.
Brent said there were a number of "good quality" wins and some "good prospects".
The Panmure Liberum analyst thinks Costain is "simply too cheap", trading on a 2025 free cash flow yield of 13% and a PE of 4.7x, given GBP158 million expected cash on the balance sheet.
Brent reiterated a 'buy' rating and increased his share price target to 135p from 100p.
By Jeremy Cutler, Alliance News reporter
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